Question

In auditing the accounting payable cycle, the vulnerability will mostly come from failure to record and report some liabilities. How will the auditor go about auditing for unrecorded liabilities? -Discuss

Answer 1

In any of the audit procedures, the first basic step is to inquire the management regarding the controls and procedures adopted by them to deal with particular area of financial data and then as a normal audit procedure we go through the Documents provided regarding the purchases made and match them with the payments made and then look whether the balance payable as per our calculations arrived by inspecting the documents are matching with the payable edger of their books. If not matching, we have to perform other procedures, go throught the emails sent and check each and every payment made though make and if we come across any suspicious payment or any payment to a party which we havenot came through while the inspection of invoices or if the supporting documents of such payment are not matching ith the payment made or on asking for the explanation for the same, if management are unable to provide the proper information, there arises a significant doubt regarding the existence of unrecorded liability. In order to deal with this, auditor usually go through each and every payment made during the end of the year, go through any general journal entries passed, go through the mails sent or even auditor can send balance confirmation letter to the party, regarding transaction which auditor doubts that the liability is not recorded. Auditor can also inquire various departments in the organisation and inquire the employees regarding any wrong doings in the organisation. If the information provided by the employees in each department is inconsistent, then auditor can inform the same to the management and try to seek information from the head officers and even directors and TCWG. If the management denies to provide the information , the auditor can qualify or disclaim his audit report or even he can withdraw from the engagement depending on the pervasiveness of the unrecorded liability.